retirement contribution through partnership LLC or on personal return

Forum|Forum|2 years ago
November 16, 2023
2 replies
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I am in a a 2 person LLC partnership with my wife. are we better off making retirement contributions from the LLC or on our personal returns basing the contribution on our K-1 income?

TurboTax Business Windows

Anonymous_

Level 15

@dmertz

Opus 17

Level 15

One factor is contribution limits. For a personal IRA, you can contribute up to your compensation from working, with a maximum of $6500 (or $7500 if over age 50). With a self-employed IRA (SEP-IRA), the contribution limit is 25% of your business income up to about $66,000.

https://www.irs.gov/retirement-plans/plan-sponsor/simplified-employee-pension-plan-sep

So if your LLC profit is $5000 per person and that's your only income, a personal IRA will allow you to contribute up to $5000 but an SEP-IRA would be limited to $1250. If your LLC profit was $50,000 per person, a personal IRA would be limited to $6500 or $7500, but an SEP-IRA would allow up to $12,500.

There are other kinds of plans, other rules, and more expert advice is needed. But that is one factor to consider.